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2 Stocks With Jaw-Dropping Growth Potential

By Joe Tenebruso – Nov 1, 2016 at 4:00PM

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These businesses could grow exponentially in the years ahead.

Image source: Getty Images.

When it comes to growth investing, market opportunity is a particularly important metric. The size of the market in which a business competes -- both now and in the future -- will ultimately determine how large a company can hope to become. And investing in a company that's early in its growth curve can lead to years of handsome profits as it fulfills its growth potential.

Today, we have such opportunities in Envestnet (ENV 1.48%) and MarketAxess Holdings (MKTX 1.52%), two excellent businesses with huge runways for growth still ahead.

The wealth-management platform

Envestnet is a leading provider of cloud-based software for investment advisors. Envestnet estimates its total addressable market to span across 265,000 advisors and more than $11 trillion in investable assets. Currently, Envestnet serves 51,000 of those advisors, who in turn manage 5.7 million accounts and $1 trillion in total assets. 

Image source: Envestnet September 2016 investor presentation.

Envestnet's competitive advantage resides not only in the quality of its technology, but also in the integration of its product suite. In fact, Envestnet is striving to become a one-stop shop for wealth-management professionals and has made significant progress in that regard, with offerings that include financial planning, proposal generation, trading, portfolio rebalancing, performance reporting, billing, account aggregation, and customer relationship management software, among other services.

In addition, Envestnet's recent acquisition of Wheelhouse Analytics bolsters its data analytics capabilities. The move highlights another one of Envestnet's strengths: acquiring leading technologies as a means to provide more value to its users and further widen its competitive moat.

At only $1.5 billion, Envestnet's current market capitalization doesn't fully reflect its immense market opportunity. I expect that gap to close in the years ahead as wealth managers continue to flock to Envestnet's platform, and investors come to better appreciate the company's leading competitive positioning. As such, long-term investors who buy Envestnet's shares today should be well rewarded.

The electronic bond-trading network

MarketAxess Holdings operates a leading platform for fixed-income trading. The company continues to gobble up share of the massive global debt markets.

Image source: MarketAxess August 2016 Investor Presentation.

Yet even after years of steady share gains, MarketAxess holds only about 16% of the high-grade and less than 10% of the high-yield bond markets. That leaves plenty of growth still ahead, with MarketAxess estimating that a 1% increase in market share in its core markets would represent an additional $22 million to $26 million in revenue, and up to $39 million when factoring in its expanded markets. For a company that generated slightly more than $300 million in total revenue in 2015, further gains of such nature would be a significant boost to its top line growth.

Helping to drive this growth is the value MarketAxess provides fixed-income investors through improved pricing and trading efficiency. Importantly, MarketAxess' platform also adds greater transparency to what has historically been an opaque bond market -- something that's becoming particularly important in the current era of heightened financial market regulation.

MarketAxess is also expanding into large new markets, such as municipal bonds and leveraged loans, while also rapidly growing its international businesses.

Image source: MarketAxess Q3 2016 earnings slides.

This powerful combination of steadily increasing share in its core markets and successfully expanding into high-potential new areas should provide many years of strong growth for MarketAxess, as well as market-beating returns for its shareholders.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of and recommends MarketAxess Holdings. The Motley Fool recommends Envestnet. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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